Anthony Pratkanis University of California

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1 Anthony Pratkanis University of CaliforniaWeapons of Fraud: How con criminals scam the public and what we can do about itAnthony PratkanisUniversity of California

2 Some common scams include:How do Americans lose $40 billion in telemarketing fraud and $100 billon a year in fraud and what can be done about it?Some common scams include:1-in-5 prize tacticCanadian lottery ticketsGold coin investmentsPhony Internet investmentsCharity fraudOil and gas scamsRepeat victimization through reload

4 How do we know what is myth and what is reality?Our sources of knowledgeMultiple AARP & FINRA surveys of victims (plus control)Call Center experiments and experienceAnalysis of 320 undercover fraud tapesTrained over 2,500 fraud fightersWarned over quarter million potential victimsScience of social influence

6 Victim surveys find no evidence for Myth of Weak VictimIn general, AARP surveys have looked for a victim profile and has yet to find one.Victims come in all shapes and sizes – some are active in their community and leaders whereas fit more stereotypic notionsWillie Sutton robbed banks because that is where the money is; con criminals rob seniors because that is where the nest eggs are.Emerging evidence shows that seniors are taken less often (just the target of more pitches)

8 Victims are More Likely to Have Experienced a Negative Life EventSurvey asked about 25 standard life stress events such as:Problem with troublesome neighbors or co-workersDeath of a spouse or partnerDeveloped a condition that limits your physical activityDifficulties in relationship with a spouse or loved oneRecently moved or changed residencesNegative change in financial statusChange in social activities for the worseHypothesis came from the cultic literature, which finds that negative life events are a predictor of joining a cult

10 Financial literacy of investment fraud victims and non-victim investorsAsked participants eight financial literacy questions:The APR is the most important thing to look for when comparing credit card offers. True/FalseOver a 40-year period, which do you think gave the highest return? Bonds, Stocks, Bank savings account, IRA, No answerWith compound interest, you earn interest on interest in addition to your principle. True/FalseWhen an investor diversifies his or her investment, does the risk of losing money decrease, increase or stay the same? Decrease

11 Opposite to myth: Victims are more financial literate than non-victim investors.

13 Scam pitches are tailored to the “hot buttons” of targetsThe con criminal profiles the potential victim through in-take interviews, list exchanges, and records psychological information about the victim on lead-sheets.The con criminal tailors the pitch to meet the psychological profile of the victim.Tailoring influence attempts (using the information to create phantoms, similarities, consistency traps, obstacles to the scam, etc.)Tailoring the scam to the victim:High internal controls were more likely to fail prey to investment fraudHigh external controls were more likely to fail prey to lottery scam(Such results are consistent with social psychological findings on individual differences and influence)

14 The 1-in-5 prize tactic Students told at the end of an experiment:You have been randomly selected by our computer to receive one of these prizes: a TV, compact-disk player, multicolor university mug, VCR, or $50 mall gift certificate.To claim your prize, you need to write essays for 2 hoursControl: Asked to stay and write essays.

16 How is this crime prevented?Given: The weapon in fraud crimes is social influence.Then: How is the crime prevented?Research question:Can social influence be used to fight undue influence?If so, how?

17 Our Approach: The Call Center ResearchImagine you have 5-10 minutes to talk with a potential victim. What would you say?Santa Monica’s Reverse Boiler Room: Call victims whose names have been seized in FBI raids and warn them.Does it work?If so, what works best and why?Develop interventions scripts for use at other centers

18 The Research ApproachNTVCC Senior Center volunteers call potential victims using an intervention script.Potential victims are from seized mooch lists (very active lists; common to find someone who just lost money)Professional telemarketers call shortly afterwards with a sting pitch to assess victimization

19 Experiment 1: Investment FraudWe contacted 119 at-risks individuals whose names were obtained from a call-list of a fraudulent investment firm.Received an intervention of:Control (What is your favorite TV show?)Prevention: ForewarnedWithin 5 days received a sting message from novice or professional telemarketer

20 Forewarned Message Calling from LA and working with the FBITold their phone number had been found in a raid of fraudulent telemarketersDialogued about their recent experiences (to gather info for law enforcement) and discussed how to deal with fraudProvided general info about fraud crimesProvided specific info about investment fraudTold never to invest over the phone

21 The sting Delivered by novice or professional telemarketersDeveloped in cooperation with a retired fraud criminal to mimic his “in-take” sting to secure initial complianceEmployed well-known influence tactics such as foot-in-the-door, norm of reciprocity, altercasting, and scarcity

22 The specific sting I am John (Jill) from Royal American RaritiesDid you get the mailer offering a free Sacagawea Golden Dollar? (no mailer sent)Good thing I called – last day of the offerFor qualified investors such as yourself, we are offering a free Sacagawea Golden Dollar, with no obligation, just for reviewing our investment packageCan I mail you the free coin today?

23 Ethical Safeguards & DebriefingFBI on-site to monitor the proceduresResearchers monitored overall participant reactionsDebriefing:Letter (with a Sacagawea Dollar) explained the dangers in responding to such offersMaterials and brochures describing the nature of fraud crimes and what can be done about it.Toll-free number for those who wanted to discuss any aspect of fraud crimes.

25 Summary of FindingsFirst demonstration of an effective deterrent to this crimeForewarning worksSkill of the fraud criminal makes a difference – skill at using the weapons of influence

26 Exp 2: Charity FraudWill the “forewarned” message generalize to charity fraud?Can it be strengthened by more specific information about the crime?This experiment conducted as a result of Sept. 11

27 Charity fraud methodsContacted 55 at-risk individuals from a “criminally-qualified” listReceived an intervention of:Control (What is your favorite TV show?)Prevention: Forewarned with questionsWithin 3 days received a sting message from a professional telemarketerSame debriefing procedures

28 Charity Prevention ScriptSimilar to previous “forewarned with fear” script with these additions:Warning about people calling using Sept. 11 pitchAsk for a registration numberAsk how much goes to the charityIf they can’t answer these two questions, don’t agree to give them anything

29 Charity StingJohn (Jill) from Citizens for a United America raising money for NYC reliefAnonymous philanthropists giving matching money up to $50 millionPledge now and receive an American flag pin

31 Summary of Findings Forewarning worked againWorked with a charity as opposed to an investment fraudFew in Forewarned treatment asked the two questions (just hung up)Specific instructions were more impactfulLower compliance rate overall may be due to the more demanding request and general media warnings

32 Next question: Can compliance be reduced further?Teaching volunteers to use these tactics in their communications with possible victims:Self-generated persuasionVivid appeals

33 Exp 3: Self-generated persuasion and vividness scriptsWe contacted 100 potential victims to tests 2 new scriptsNew scripts: self-generated persuasion and vividness plus controlProcedures were the same as in Experiment 1 with the Sacagawea sting

34 Self-generated persuasionSame as forewarned script with these additionsCan you help us by tell us what to say to victims?What would you tell someone like yourself who is about to fall prey to this crime?What would you tell them on how to develop a plan for getting off the phone?What would you tell them on how to determine if the call is fraudulent?What would you tell them to convince them not to do business with such a person?

35 Vividness appeal Same as forewarned script with these additions:Imagine a person at your door with a dark ski mask. Would you let them in?Its no different when a stranger calls.

37 Summary of results Self-generated persuasion reduced victimizationVividness increased victimizationSacagawea lost her lusterVolunteers found it difficult to administer the self-generated script and easiest to administer the vividness script

38 The Bottom line of Our Call Center ResearchReverse boiler rooms such as the NTVCC Senior Center are an effective tool for the prevention of economic fraud crimes!Some prevention messages are better than others

39 Prevention messages that work!ForewarningSpecific information about the crime along with specific steps to avoid that crimeSelf-generated persuasion (although hard to administer)

42 Research Application: Western Union SettlementAs a result of an agreement with State Attorneys General, Western Union has funded $8.2 million worth of prevention messages from a nationwide network of reverse call centers.

43 FINRA Investment Fraud SeminarFINRA has created a multi-million dollar campaign to teach a social norm: Before you invest, ask and check the broker’s license and the product’s registration numberPrint and TV PSA campaignTaught via 2 hour seminars teaching about the crime, social influence, and prevention skillsThis campaign was designed using our fraud research and the science of social influence

44 Specific GoalThe goal of this campaign is to turn investors from “passive” recipients of influence attempts to active, critical investors.Question-asking: Establish a social norm to question; change the investor from a passive recipient of influence to one who actively questions and counter-argues the pitch.Checking: Establish a social norm of verifying professional license and product registration with authorities prior to investing.Influence resistance skills: Develop a knowledge of the influence tactics used in fraud along with skills for identifying their use and for resisting these appeals.

47 Outsmarting Investment Fraud: SeminarVideo/DVD ModulesRisky Business video teaches about investment fraud using interviews with victims and con criminals.Provides an overview of investment fraudWeapons of Fraud video demonstrates common influence tactics and relates them to investment fraudBuilds influence-identification skillsSmart Shopping Network video tests knowledge of influence in a humorous manner.Preventing Investment Fraud video includes interviews with victims, con criminals, and state securities regulators and a sequence on the right way and the wrong way to respond to a pitchModels how to deal with fraud and teaches “ask and check”

48 Seminar Evaluation: Behavior ChangeRespondents were randomly assigned to a first seminar (N= 117) or to a second seminar delivered one week later (N = 158)After the first seminar but before the second, a retired con criminal pitched seminar participants on an oil and gas scamMeasure: Would they agree to accept additional communications (portfolio) about an oil and gas investment?Con criminal used “foot-in-the-door” plus every influence tactic he knew to accomplish this goal

50 Seminar ResultsAlthough blind to treatment, our con criminal could identify those who went to the seminar because they were asking so many questions.Con criminal was very frustrated by the questions and even got angry at one of our seminar-attendees and hung upSelf-report data also showed participants rated the seminar as excellent overall and in all components (6 or 7 on a 7pt scale)

51 Closing thoughts about fraud researchThe science and the human side of fraud fighting.